Tuesday, June 30, 2009

Proposed Legislation Would More Than Triple Harbor Maintenance Tax

On May 12, 2009, Representative Laura Richardson (D-CA), along with other co-sponsors, introduced the Making Opportunities via Efficient and More Effective National Transportation (MOVEMENT) Act of 2009. The bill (H.R. 2355) would establish a National Goods Movement Improvement Fund to provide funding for infrastructure projects to improve the movement of goods, mitigate environmental damage caused by the movement of goods, and enhance the security of transported goods. Highlights of the bill include:
* Increased HMT: The bill would more than triple the Harbor Maintenance Tax ("HMT") on port use to 0.4375% (from 0.125%) of the value of the commercial cargo involved. (The bill would also impose a tax on commercial cargo entering the customs territory of the U.S. other than by port use following foreign port use at 0.3125% of the value of the commercial cargo involved).
* Authority to Reduce HMT: The bill would also grant authority to reduce the HMT at individual ports where port use is subject to a State or local fee for infrastructure enhancement. The authorized reduction would be the lesser of the State or local fee or 10% of the otherwise applicable HMT.
* Liability for HMT: The HMT for port use would be paid by the importer at the time of unloading. In the case of commercial cargo entering the U.S. following foreign port use, the importer would be liable for the tax at the time the commercial cargo enters the customs territory of the U.S.
* Effective Date: The amendments to the HMT would apply to port use and commercial cargo entering the U.S. on or after on the 90th day after the date of the enactment of the MOVEMENT Act.
* Creation of Fund: The bill would create a National Goods Movement Improvement Fund. 71.43% of the taxes collected under the increased HMT would be appropriated to the National Goods Movement Improvement Fund.
* Authorization of Program: The bill would authorize the Transportation Secretary to carry out a National Goods Movement Improvement Program to provide funding for eligible projects using amounts appropriated out of the National Goods Movement Improvement Fund.
* Sunset Provision: The authority of the Secretary of Transportation to make grants under the National Goods Movement Improvement Program would sunset on October 1, 2019

Monday, June 22, 2009

IC DISC - is anyone using anymore?

Here is a reprint of an old article on private export company formation for tax purposes.

Let me know what you think!

Since the recent repeal of the Extraterritorial Income Exclusion, tax savvy U.S. exporters are looking for ways to replace the tax benefits they will start losing in 2005 on their export profits.
The American Jobs Creation Tax Act of 2004 is phasing the tax benefits of the EIE out over 2005 and 2006, as a response to the World Trade Organization deeming the EIE as a harmful tax policy.
Many privately owned businesses and their advisers are unaware that significant export tax benefits are available through a tax policy that has been in effect since 1984.
Congress enacted the Interest Charge Domestic International Sales Corporation [IC DISC] in 1984 to create incentives for U.S. exporters.
As originally enacted, the IC DISC generally provided a tax deferral for profits on the first $10 million of export sales. Before 2003, competing export tax policies were generally more beneficial than the IC DISC, and the IC DISC received very little attention.
However, in 2003 Congress reduced the dividend tax rate on individuals to 15 percent. Consequently, the IC DISC became a very effective tax strategy for exporters. Moreover, the IC DISC is the only export tax incentive available for taxpayers after 2006.
In most cases the IC DISC brings more tax benefits in 2005 and 2006 than the EIE. The IC DISC benefits are available to Limited Liability Companies, partnerships, S-Corporations and closely held C Corporations.

Here is how it works
The owners of an exporting company will form a new corporation and elect to treat this entity as an IC DISC for federal tax purposes. The IC DISC will usually have the same ownership structure as the exporting company.
The exporting company will enter into a commission agreement with the IC DISC. The IC DISC is permitted to charge the exporting company a commission on the exporting company's qualified export sales. The commission is calculated under various methods provided by IRS regulations, but the two most common approaches are:
4 percent of the revenue of the qualified export sales; or
50 percent of the taxable income of the qualified export sales.
The commission expense is fully deductible by the exporting company. The IC DISC is tax exempt on its commission income.
Income tax is only imposed on dividends to the IC DISC shareholders. However, the dividends are taxable at 15 percent.
Consequently, taxpayers that were normally paying 35 percent income taxes on their export profits may be able to reduce their income tax rate to 15 percent on half of those export profits. This leads to significant annual tax savings for many exporters.
The existence of the IC DISC will be transparent to the export company's customers. The IC DISC will not impact the operations of the export company. The IC DISC is not required to have employees or perform any specific
Distributors or manufacturers may qualify for the benefit on their export sales. Moreover, distributors and manufacturers may claim an IC DISC benefit on the same export product.
However, the distributor will be required to share copies of its bills of lading with the manufacturer. In addition, the distributor generally must not further process or change the manufacturer's product before it is exported.
For a corporation to qualify as an IC DISC, it must be a U.S. corporation with one class of stock that has a par value of at least $2,500. Also, at least 95 percent of its income must be from exports and 95 percent of its assets must be export related. No more than 50 percent of the fair market value of its exported products can be attributable to articles imported into the United States.
While the rules for defining what qualifies as export income and export assets are quite technical, the reality is that meeting the 95 percent thresholds is not particularly difficult. The IC DISC was originally created as an export incentive. Thus, the regulations were intentionally drafted to be favorable to exporting
What may be surprising to many architects and engineers is that their services can also qualify for IC DISC benefits. Only services for construction projects located outside of the United States qualify. However, the professional services related to those projects can be performed in the United States.
IC DISCs can significantly reduce the tax rate on export profits. However, the benefits cannot start until the IC DISC has been formed. Because states tax IC DISCs differently, companies should discuss with their tax adviser the preferred state of incorporation.

Wednesday, June 17, 2009

090617 BRIC Summit on Moscow

While America is focused on our internal financial and business issues, the BRIC countries held thier 1st Summit this week in Russia, simultaneously with the Shanghai Cooperation Organization summit. While the Presidents of the Russia, China, India and Brazil met in Moscow with little real news (except that they want to reduce the US' influence on the gloabl economy and that Russia may put some of it's vast oil reserves in "BRIC Bonds"), the SCO moved forward with some tangible tactical plans.

SCO is composed of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan with Inia, Iran, Mongolia and Pakistan having observer status. Their efforts were to increase economic and security among it's members. Notably absent are the growing former Russian states. It appears that they will work towards specific plans to cooperate economically and that a Foreign Trade Agreement will be developed over the next year or so.

Brazil's President Luiz Inacio Lula da Silva, Russian President Dmitry Medvedev, Chinese President Hu Jintao and Indian Prime Minister Manmohan Singh met in Yekaterinburg, June 16, 2009. Their meeting together may be the biggest news, without G20 countries looking over their shoulders. China's Hu presented a 4 point statment indicating how the BRIC countries should cooperate to gain more control over the global economy, including helping it recover from the current crisis, changing the intl monetary system, solve their own internal structural problems to speed further development, and ensuring a secure food, energy and public health global distribution system.

In the BRIC Summit, China emphasized their focus on their internal development since US and EU markets are not importing as much. China also hopes to push for a more diversified Intl monetary system wile demanding that all major reserve currencies maintain relative stability. Of course, China has allowed some movement of their own currency in the last year, but it still remains very rigid.

It's hard to say whether this BRIC Summit will become an on-going mechanism or just bring emphasis on the resolving the current global recession. Each country has it's own problems (One of my West Indian friends asks what will happen to India when China starts to fight the US for global dominance - he says India will attack Pakistan, of course!)

From a global trade and transportation standpoint, China will continue to be the world's major factory, but the BRIC influences are causing a Regionalization rather than Globalization of trade. CIsco, Apple and other forward looking companies are using this recessionary period to establish buy/sell entities in BRIC countries, leveraging local and regional tax/trade benefits to deliver products within those regions. Global trade & logistics professionals will need to learn more about intra- and inter-regional opportunities to fine-tune their strategies.